I’m Ezra Klein, and this is “The Ezra Klein Show.”
If you’re following the economy closely right now, you are caught in a morass. I feel caught in a morass of these weirdly contradictory stories. You have panic about labor shortages right alongside celebrations of rising wages. Dire warnings of runaway inflation, and then look over on the page and comforting assurances that we’re on a path towards a full employment economy, finally. There’s all this anger and policymaking and reaction to unemployment benefits that some feel are letting people lazily refuse to take jobs, alongside genuine relief that people can wait to choose a job that works for them and their family. They can refuse a job that would put them at risk.
So I wanted to do an episode trying to draw the big picture of what is happening right now in the US economy. Look at the wage data, the employment data, the inflation data, the psychology of it, all of it. And I knew who I wanted to talk to for it.
Betsy Stevenson served as chief economist of Barack Obama’s Department of Labor. Then she was a member of Obama’s Council of Economic Advisors. She’s now a professor of public policy and economics at the University of Michigan, and co-host of a podcast “Think Like an Economist.”
And something I appreciate about Stevenson is she blends really rigorous, empirical economic analysis — I mean, no one is deeper in labor market data than she is — with a humane attention to the parts of our economy and of our work lives that many economists and economic commentators are quick to overlook.
Like the indignity and difficulty of working a grueling low wage job. The fear of a pandemic that so many are still vulnerable to even when we don’t always admit that in our national conversation. The psychic impact that a year of confronting mortality, and loss, and fragility, and fear has had on how we think about our lives and careers. The often impossible difficulty of being both a parent and an employee. All of this is economic. It all feeds into the economic decisions we make, and she really gets that.
So this is a clarifying, at times very optimistic, conversation about the US economy right now. Both its possibilities, but also really its risks. Not just the risks of inflation, but the risks that we will not give people the chance for a better life that they now possibly stand on the cusp of. As always, my email is email@example.com.
Betsy Stevenson. Welcome to the show.
Oh. It’s my pleasure to talk with you today.
So how would you tell the story of the US economy over the past few months?
I think it’s sort of hard to tell the story of the past few months without actually starting at the beginning. This is an economy that’s been traumatically impacted by a pandemic. Not only had we never seen anything like this before, but I don’t even think it was possible to really have imagined something like this before, where people just had to stop going to work for their own health and safety, for the health and safety of others.
And for some people, that meant they lost work. For other people that meant they had to reorganize their lives in order to work from home. And then there were people who had to continue going to work in a much more dangerous situation than they had ever expected when they accepted that job. I think what we’ve been seeing over the past year has been this very slow recovery. That then of course got accelerated as we started rolling out vaccines.
But I still don’t see us at a place where we’re fully ready to go back to normal, either from a health and safety perspective or a psychological perspective. But I think the thing that we’re grappling with right now — if you’re asking like the last couple of months — is we just had a really tough year, and there’s been a lot of loss. I mean, loss of lives, loss of jobs, loss of dreams, loss of opportunities. And I think people are trying to process that loss and figure out what’s next.
Well, I’m caught with that in the direction I want to go. I was going to dig into the data. But first, I actually want to jump ahead and talk about something that you brought up in an op-ed you published recently in The Times. Which is that there’s this Pew survey from January, which found two-thirds of the unemployed were considering changing their occupation or field of work, which is unusual. Could you tell me about that?
Yeah, I mean, if we think back to the beginning of the pandemic, we thought more than any other recession people were just going to go back to doing what they did before. We’re just going to take a pause, and then we’re just going to go back to our old employers, our old jobs, our old way of doing things.
But the thing was, the pandemic lasted longer. It shook us up more than we expected. And a lot of people are questioning what they should do. They’re questioning it maybe because their jobs aren’t coming back. That industry doesn’t have the same opportunities they thought. They’re questioning things because they’ve been forced to look at their jobs, their lives, the choices they’ve made.
And I think a lot of people are doing a re-evaluation to figure out what’s the right path for me to be on in a 21st century labor market. And how do I balance what I want out of life — work, family, my personal goals. And so we see this very high number of the unemployed saying they’re considering changing occupations or industries.
We also see similar numbers when we look at the employed about people who are considering making a change. We all will have various times in our life where we’ll stop and say, whoa, am I going in the right direction? Is this the right occupation for me? Should I do something differently? But I can’t think of any other time when it’s been a correlated shock across the entire country where we’ve all been forced to ask questions.
I want to add some numbers here. There’s been a group of economists, including folks like Dubay and Edelberg, who recently put out this interesting analysis of April’s jobs data. And the background to this is that we’ve been adding a good number of jobs, but not as many as people expected.
But what they found was that the main reason the overall jobs number was so much lower than folks thought it might be wasn’t really a lack of people entering employment. So we were adding a lot of people to jobs. It was an increase in the number of people leaving their existing jobs. That if you hadn’t seen that shoot up so much, then the increase in top line employment would have been more like 800,000, which is in line with expectations.
And that got me thinking about your essay on this again, which is this way in which what we might be having is one of the psychological aftershocks of the recession. What you might call “the life is too short economy.” Life is too short to be doing this job, living like this, doing this work for these wages.
That there’s a way in which people are psychologically — after a year that forced so much confrontation with mortality and fear and unhappiness and depression — just psychologically demanding a different economic life for themselves. And that’s not a story we really know how to tell economically, but that doesn’t mean it’s not a big economic factor.
Yeah, somebody else called it the “take this job and shove it” phase of the pandemic, which I thought was very clever. So normally what happens in a recession is everybody so terrified that they’re not going to be able to find a job that you don’t quit.
I mean, I remember in the 2008 recession. I would look at the quit data and be like, come on, people. Quit your job. Because quits equals optimism. And so actually, when we see the quits numbers being really high, that seems bad and in the short run it’s going to mean fewer jobs, but it’s actually a really optimistic time. And that’s part of what I think is happening right now. We keep telling people that there are plenty of jobs out there; there’s going to be plenty of jobs. We’re going to snap back. Employers are all over the place trying to hire you. So take your time. Quit your job find something better. Look for the right thing for you.
And right now, people are looking ahead and they’re thinking that not only is there going to be the same amount of jobs next month as there is this month, but maybe even more jobs. Maybe there’ll be more jobs in September. So maybe now is a good time to quit, take some time with your family, take some time to process the pandemic, and then go back to work in a new job in September. The thing that motivates people is really thinking about how likely are they going to be — to stay long-term unemployed. And I think right now we’re telling people that it’s all plentiful jobs ahead.
This moment is really interesting from an economic perspective, because you can really read the data in a couple of different ways. And I don’t think I’ve covered many moments when there is so much contentious feeling about how to interpret things. So you were just talking about quits as a sign of optimism. Quits are the 21st century high, and it’s not particularly close. Wages are rising faster than any time since 1980s by some estimates. Job openings are at a high. And then job growth has been a little slower than expected. Inflation is up more than people are comfortable with.
And one way of looking at this is that well, the economy is not slingshotting back to normalcy or beyond normalcy in the way some hoped. And then another way of looking at it that you’re hearing is that this is a success. That what you are seeing is an economy that is tilting more towards worker power — workers demanding higher wages, workers demanding the job they actually want, workers leaving a job they don’t want.
And that we’re just not used to an economy that has more worker power. And so we’re interpreting a lot of its side effects as risks, as opposed to what they really are, which is a sign of policy success. How do you read that debate?
I think that’s such a nice way to frame it. We have given people enough money that they are not going to starve. And what are they doing with that? Well, that is the sense of worker power.
I had a student this year when I was trying to explain the disincentive effects of unemployment insurance — and I was being a good economist and explaining moral hazard, and how this is going to discourage people from working. Student raised his hand and said, is it really moral to use the threat of starvation to motivate people to work?
And I didn’t have a good answer for him. I mean, that’s the value judgments of a nation. And so I think right now we are at a point where we’re asking ourselves, is it moral to use the threat of starvation to motivate people to work? And I think some people are saying, sure, I’m OK with that. That’s exactly what’s going to get people out of bed, and work is good for them. And there are other people who are saying, no.
We’ve had workers losing bargaining power year after year, decade after decade now for 40 years. And they’re fed up and they want to see something different. And the pandemic, out of necessity, I think that we would have ended up with a worse macro economy if we hadn’t supported people — let me be clear. Because of that — those follow on effects — as people start defaulting on their mortgages, they stop paying rent, you get big problems in the economy.
But I think because we had so many people at once both lose their job and then get financial support through unemployment insurance, because it’s a mass of people, it’s giving people more power. I think that it’s a really good time for us to ask, what does this mean? Are we OK with this?
In some sense, it’s no different from raising the minimum wage, right? What we’ve done now is said, you can stay home for the next few months and receive something on the order of $8 to $10 an hour, or you can go to work. And then employers are saying, I can’t get people to work for $8 or $9 an hour. Well, that’s not that surprising. Maybe it’s time to pay people a little bit more than $8 or $9 an hour.
One thing that whole debate presupposes is that we’re in the post-pandemic economy. There’s this whole argument that workers should be going back to work faster. Twenty-five Republican governors are cutting off early unemployment benefits. One Democratic governor, Edwards in Louisiana, is doing the same.
And to me — like, I’m vaccinated, the people I know are mostly vaccinated, the area I’m in is incredibly heavily vaccinated. It feels like right where I am, the pandemic is coming to an end. On the other hand nationwide, only about 50 percent of the country — and we’re talking here people eligible for vaccination, not kids — only about 50 percent of the country has a full vaccination, right? Two shots, if that’s what the dosing sequence you’re on.
A lot of people still have family members who they’re in touch with or near who are immunocompromised, and maybe the vaccine can’t work for them or they don’t have it. A lot of communities aren’t that vaccinated. There’s now the delta variant going around, which people are worried about that taking hold and creating big disruptions again.
So I’ve also wondered if there isn’t a distortion in this whole debate between basically wealthy, educated economic commentators who live in an America where it does feel like the pandemic is over, and workers who don’t live in that America, who don’t feel like it’s over and maybe are more actually right. And so the idea that we should be seeing total post-pandemic snapback growth at a time when, sure cases are falling quite a bit, but again only about half of people are fully vaccinated. Maybe that’s just wrong, and it’s the expectations of the kind of economic chattering class that are off.
So this idea that we would all go back to doing what we’re doing misunderstands what happens when you have so much reallocation happening at once. The way I try to describe this that people might be able to visualize better is imagine that the pandemic caused 50 percent of people to realize that their spouse was not for them, and 50 percent of people got divorced. And then everyone was saying, why aren’t people remarried by now? Well, it takes a little while to meet a new spouse, to decide you’re going to get married, to find a good fit. The same thing’s true in the labor force. So with all this reallocation going on, it just takes time in the same way that it takes time to meet someone new after you’ve been through a divorce.
And so I think that when you talk about these Republican governors, they’re just not understanding that reallocation takes time. And I mean, I’ve been stunned talking to family and friends how much — I honestly don’t know anyone who’s ready to go back and be like it was 2019. And I’ve been really surprised by that, but that’s —
the delta variant is playing a big part in that. Even though they’re vaccinated they’re like, well, particularly for my older relatives. Or what if there’s a breakthrough? And they’re just scared, and they’ve been living scared for so long they’re struggling to think about how to change. And there are people who don’t have a lot of options who are just as scared about their health. And they’re living in communities where people aren’t vaccinated, where there’s still risk to them.
And then I said earlier, somebody called it the “take this job and shove it” part of the pandemic. I’ve been trying to think about what it would feel like if you worked in retail, or at a restaurant, or were some kind of essential worker, where you had people screaming at you over mask policies. You don’t make the policies. You actually know that the mask is going to keep you safe. You’ve got to be around people all day long.
And some jerk is telling you that your life is so unimportant, and their freedom is so important, their freedom to be able to infect you is so important that they are going to potentially threaten your life just because you tell them that you have to wear a mask to enter. I think it’d be really hard for me to go back to that kind of job. And I think we haven’t started to think about the trauma that essential workers went through, and they’re not at the end of that.
Not only not at the end of that, but for a lot of these jobs, they’ve also just gotten worse. Wearing a mask all day in a hot kitchen, or frankly anywhere, it just sucks. Like I wear my mask when I go out. I don’t enjoy it. I would not like to have to do it all day, but I don’t have to because I work at a desk inside my own home. Like that is not the case for most people.
People who would have to spend all day, every day in an environment they already don’t like, where they now have to wear something that makes it even worse. And if you wear glasses, your glasses fog all day, and I mean, you get headaches oftentimes. It gets tough. And it’s one place where I’ve been more radicalized in a direction I already was in my own economic politics.
The level of empathy sometimes in economics about how bad the jobs people work are, and what it might mean for them to not want to do them is pretty low. We really treat people like somehow it’s like their duty to take any job that is offered instead of asking well, is it a good job? Does it work with their childcare responsibilities? Can they get to it? Is it not going to terrify them because they’re around all these other people, but they’re masked and nobody else is. And they have a —
We’re pretty unempathic about the work people go through. And we spend all this time talking about essential workers, but we sure don’t treat them well. And it’s not like everybody who’s an essential worker during the pandemic is getting a big bonus on the other side of this for the incredibly, apparently essential service that they gave to society, which we recognize linguistically, but in literally no other way.
So when I was in graduate school, I was studying labor and macro, and a macro economist said to me, I never understand why people study labor as an entire field. It’s not like we have apple economics. What’s the difference between an apple market and the labor market?
And it was just — I mean, the most explicit statement of not understanding that people are not a product. That they are people, and it’s just very different. I think economists fall prey to this all the time, and I see this right now with the hand-wringing over unemployment insurance.
And I’m like, look. We got three months left of these extra $300 payments. I don’t think anybody is sitting at home and thinking, ah, I just am going to live high on the hog on these unemployment insurance payments. I think they’re thinking, my job is miserable, and I’m going to take this nice time for a break. And I’m going to look right now while I can for something better.
And I guarantee you that we could get rid of all of unemployment insurance tomorrow, and we wouldn’t put 7.5 million people back to work overnight. I guarantee that. So it could be a factor, but it might not be a really big factor. And it might even be OK. OK to appreciate the fact that people have had a really hard year.
People who have white collar jobs with good incomes feel like they’ve had a hard year. And you can look in the press and see all sorts of stories about how people should help themselves heal or find ways to take care of themselves. Well, if you’re barely putting food on the table, your job became enormously more miserable, and then you turn on the news and you see people yelling at you because you’re not getting back to work fast enough. That’s just a lack of appreciation of the humanity of lower wage workers.
I have really struggled to decide what I think of the debate over the unemployment insurance benefits. Because one version is what you were just implying there. That maybe they’re having a significant effect on people going back to work. But even if they are, that is a neutral or even a good thing. Because my God, like let people have a minute.
On the other hand, it isn’t clear to me how big of a role they really are playing here, compared to the role they’re playing in our economic discourse. My colleague, Paul Krugman, who more important than being my colleague is a Nobel Prize- winning economist. He recently pointed to the UK as a comparator here.
I mean, instead of relying on enhanced unemployment insurance, they mainly subsidized the earnings of workers placed on temporary leave by employers who were in lockdown sectors. So you might expect that if the UI structure was a problem, you’d see a huge difference between the two economies in the recovery.
But in fact, the British press is full of reports about employers having a hard time finding workers and people not taking jobs. Which again to me implies the truth is closer to your more psychological explanation here, of people recognizing either the job isn’t right for them. Or even if it was right for them, that right now they’re not in a place to do it because of vulnerable family members or their own trauma or whatever it is. But where do you come down on the UI debate?
So I think if UI is having an effect, it’s small. The thing is, I actually am like, I don’t care. I just I don’t care. Because if it is discouraging people, they need it. And it’s not discouraging enough people for it to really matter.
Even if you talk to economists who really think it’s playing a big role right now, they think maybe we would have had 100,000 more jobs added last month, right? That’s what all the hand-wringing is over. Is would we have had 100,000 more jobs, 50,000 more jobs, 5,000 more jobs? Do we really need to deny benefits to millions of people because we’re worried about whether we might have had a few thousand more jobs?
How do you think about childcare? So I know a lot of families that have really changed their situation, uprooted themselves, gone to live near family because having kids doing Zoom school meant you couldn’t work. And there’s been some debate over this.
But then there was this Brookings analysis that I found that if you look at the five percentage point drop in the employment to population ratio for mothers with children, it’s more than fully accounted for by looking at the parents with young children as opposed to teenagers. And of course, you can leave teenagers on their own. I mean, they might drink all your liquor, but you can. Whereas like young children are — somebody has actually got to be watching over them. So what role do you think childcare and the disruptions therein have played in inhibiting labor market recovery?
So if you look at the data on childcare workers, you saw the labor force participation of mothers rising over the 10 years prior to the pandemic. And in lockstep, you saw a rise in the number of childcare workers, so they were moving together. And we’ve seen a loss of childcare workers. We saw a lot of moms really struggling. And I don’t know whether we’re going to see some sort of permanent change in how people feel about childcare, how they feel about living in their family.
Actually before the pandemic, when you look at mothers with young children who are moving, they tend to be moving back towards a parent, or in-law, a mother, or mother-in-law who can help them take care of that child. We saw that obviously accelerated during the pandemic. Are people going to move back? Well, are companies going to make them move back? There were a lot of grandparents who didn’t get to see their grandkids a lot during the pandemic, who may feel like it’s more important that they play a bigger role in terms of childcare, in terms of being able to see their grandkids.
So I do think how we think about childcare is shifting and changing. But I think we’re also frustrated and fed up to have women disproportionately being responsible for childcare, while at the same time really being equal players in the labor force and not getting any support from government. And I feel very strongly that if men were in our situation, there would be all sorts of government support for childcare.
And I think that women have not been assertive enough over the last 20 years at saying, this is not a personal issue. This is an economic issue. You want me to use my skills to be effective in the labor market. And I want you to help me hire highly qualified people to provide early childhood education for my child.
Let’s talk about inflation. What are you seeing in that data?
Well, what we see right now is some people really want to get back to doing what they were doing before. And we’ve got a lot of supply constraints still. You hear the discussion that we can’t get all the parts to build new cars. And so we’re seeing prices of cars, particularly second hand cars, like rising really rapidly.
People want to go on vacation. Everything’s booked, so we’re going to see prices going way up. Inflation comes when more people want to do something than there is available supply. And the question will be how much people are willing to shell out this year to be the one who gets to do something.
Think about it this way, if you’re trying to do something this year that you would only normally do once every two or three years, and everybody’s trying to do that thing that they would normally only do every two or three years. Then we’re going to have a lot more demand than normal. And in a lot of cases, we’ve had supply problems coming from global supply chains.
So that is going to temporarily push up prices. So those kinds of problems, combined with the fact that people do have more money in their pocket right now. They have more money not because of unemployment insurance. That’s not that much money. It’s because we really had a lot of excess savings, particularly at the top.
So the top 20 percent of the income distribution, both because of uncertainty — don’t know what’s going to happen, let’s pull back — and because you didn’t need things as much, they all postponed vacations. They postponed going out to dinner. They postponed buying a new car.
All that’s built up in their bank account. And the question’s going to be, yeah, we have $2 trillion in excess savings. Do people try to unleash $2 trillion on the US economy this summer? If so, we’re going to see prices going up. As long as we return to two percent, it’s not that big of a problem.
So when you look at inflation right now — when you look at what’s going up and what’s not going up and why it may be going up — where do you come down on the debate between this is a temporary mismatch of supply and demand as people try to spend money they’ve been saving up, or try to buy things that maybe now have — we’ve not produced enough of? Or, inflation expectations, the Federal Reserve’s approach, what people see coming down the pike is different, and so we’re at the beginning of inflation becoming an ongoing problem as people keep trying to get ahead of it by rising prices.
So it’s clear right now we have a temporary problem. A long-term problem has a lot to do with, I guess, what people call like animal spirits. Like what do you think is going to happen?
What worries me the most is all these conversations that say, oh, we have this big risk of inflation. The more people believe that, the more they’ll adjust their behavior. The more they adjust their behavior, the greater the risk that we’ll have sustained higher rates of inflation.
So right now, the price of cars is high because we just don’t have enough supply. Now that supply problems is going to clear itself up. But the problem is, if I believe the prices are going to keep rising, I might think I know the price of a new car is really high right now but I’d better just get it because it’s going to be even higher in two years. That pours more demand in right now, pushes prices even higher, right? And so the more people think inflation’s coming, the more they want to get ahead and buy their thing now before the price goes up, the more that inflation becomes a self-fulfilling prophecy, so the more inflation will happen. So I’m going to tell you right now. I think you should believe that we are going to open up global supply chains. There’s going to be all sorts of new cars coming on the market within a year. And that is going to not only slow the price rises down, but we might even see some sales. You might even be able to get a better deal in the future.
And as long as you believe that and you slow your roll, and you say, OK I’m going to wait and buy that new car next year. I don’t need to be at the front of the queue with all these people rushing forward to buy their new thing. Then I think inflation’s under control. So a lot of it’s just like, Ezra, what you say to people and what The New York Times says to people and what they start to believe.
And the reason people turn to the bond market is we think, OK, these are financial sophisticates. What do these financial sophisticates believe? And they’re going to be looking for behavior from non-financial sophisticates to see, wait a minute. Are these price rises more than what you would expect from the temporary supply chain interruptions we’re seeing?
And when they start to change their expectations, then I would be terrified. But you know that old saying, the only thing to fear is fear itself? Well, that really applies to inflation. You just need to believe that inflation is not coming, and it won’t come.
Well, let me tell you what I see from the media side of this. So I see an economic policy world that, for years, you’ve had a Federal Reserve target of two percent core inflation, and they don’t hit it. They’re always undershooting. And so for years I’ve heard people say, it would be better if we were more symmetrical. It would be better if sometimes it was 2.5 and sometimes 1.5, but not always 1.5.
And at the same time then, I see inflation jump in a very, very weird economy for reasons you can really tell normal stories about as you were saying. Like we didn’t make enough cars last year because nobody knew what was going on. So now people want to buy cars and they can’t. But we’ll get — the car manufacturers will ramp back up. The semiconductor manufacturers will ramp back up. The lumber manufacturers will figure it back out, and we’ll back.
Like there was a moment were it was hard to buy toilet paper and now it isn’t. Like you couldn’t find Purell, but now you can. And so it’s fine.
But what I see is a media political environment that is incredibly sensitive to any fears of inflation, sensitive to it in a way they are not to stagnating wages or ongoing poverty, right? There’s a way in which inflation operates as a kind of extra risk, emergency risk.
Maybe that’s the memories of stagflation. I mean, there were decades in this country when people routinely said inflation was our biggest problem. But nevertheless, people are worried about it.
And then you do have important voices in the economics debate like Larry Summers, your former colleague in the Obama White House, coming out and saying, look, this is a big risk. The Fed isn’t being tight enough on this. The Biden administration is spending too much money. And so that’s then creating this ricocheting conversation about inflation. So given that it is somewhat at least coming out of people who are in markets, people who in your profession, like why do you think they’re talking about it so much?
Well, let me start with Fed policy. It’s really impressive what the Fed is doing and how clearly they’re communicating. So your point is that all through 2008, people kept saying to them, your target is two percent. You undershoot it all the time, and we’ve got so many unemployed workers. Why aren’t you doing more?
And they’re like, well, we don’t want to get runaway inflation. That happens so easily. And then they realized that they could have done more, and we wouldn’t have had such a slow recovery out of 2008. And I think they don’t want to repeat that mistake. I think they learned a lesson. And good for them, that they can look back and say, here’s a mistake we made. Now we’ve got a new chance. Let’s not make it again.
They’ve been very clear that inflation will be above their target for a little while because of these kind of supply constraints. But they’ve said, we believe in our two percent target. We will average two percent. We will not let that go. And I don’t see signs that they have lost control over their target in any way. So I think the Fed policy is great.
Now, what matters to people’s lives more is unemployment, and that’s what’s really confusing. But inflation sounds out of control to people, particularly the politicians. It feels like a thing that’s out of control. But I also think it’s being used as an excuse to not want to do some of the spending that we need to do.
And Larry said — he did call it irresponsible macro policy. I think there’s a lot of economists who did not think that people needed another stimulus check. As I already said, we had $2 trillion in excess savings. And then we were like, you know what you guys need, another check? And I think that floored a lot of economists because it wasn’t targeted based on need.
And I think there are other problems that a lot of economists thought needed to be addressed. I mean, Larry to me is particularly puzzling. Because if you talked to Larry, he believes in secular stagnation. He thinks the government should be spending more to get us out of secular stagnation.
But what I think he thinks is we should be spending a little bit every year for the next decade, not that we should have put our chips all on the table for 2021. And I think that’s what he means when he says this is running the risk of inflation this year without the good it could do if there was long-run spending. Inflation is a thing where you could lose control of it really easily.
That was what I was trying to say when I said, it’s so much tied to our expectations and beliefs that I could tell you, don’t worry about it. It’s fine. The Fed has it under control. But it could easily slip through their fingers. And the question is, should we take that risk?
Like how costly would it be if that happened? And on the flip side, how much suffering happens if we don’t put money in people’s hands right now? There’s always trade offs. And I think that our political system does not do a very good job in saying, this is our cost and here’s our benefit. This is the trade off. But there’s always trade offs.
Yeah, I mean, I very much think Larry’s critique is the money in the American Rescue Plan was poorly targeted. Like if you listen to him now, he’s more or less pro the Jobs Act. I think he’s got his issues with certain things in its construction, but broadly he wanted more long-term spending, less chips on the table in 2021.
On the other hand, my view is the stimulus checks there were a key 2020 Democratic campaign promise. And economists are great for giving economics advice, and sometimes you have political risks that you also need to work on. It is very hard for me to see though the American Rescue Plan, which is a pretty limited period of spending, creating runaway inflation.
On the other hand, to your point about trade offs. One thing I’ll say for the Biden administration is they’ve been incredibly clear about this. Like going back to the Rescue Plan, like I remember talking to them about this and them saying — and Biden just gave a speech like this a few weeks ago — saying they intend to have a full employment economy. They intend to have an economy where workers have jobs, where corporations are competing for workers, and that means you’re going to see things like inflation. That means you’re going to see things like people not taking every job that is out there. Like they’re trying to run a different portfolio of risks. If like in the past, the risk set that was run was, well, wages aren’t where we wish they were. A lot of people don’t seem to be finding the work they want to see, but inflation is really under control and the market’s going great. Like they’re trying to alter that composition.
Do you think this basically looks like what they were promising? I mean, are we basically seeing what could just be a set of good policy dynamics where the downsides are downsides that we’re not really used to seeing? And so we treat them as more novel in a way where we got used to things like poverty and unemployment and wage stagnation?
So what we need to see is the proposals that the administration has put forward, the long-run proposals, the American Jobs Plan, the American Families Act. The stuff that has child care, and paid leave, and infrastructure investment, we need to see that passed. But I think this administration does have a vision for an economy where everybody who wants to work can work. And it doesn’t rely on working extremely low wages, or it doesn’t rely on an economy where workers have no bargaining power.
So we want an economy where everyone can work. And there’s a lot of political jargon around good jobs. But I think it’s really thinking about jobs where there’s a path that you could make progress on, where you can say, this is what I’m working towards. That it’s a job that pays enough that you can figure out how to pay rent and put food on the table. We want an economy where work leads to being able to have a minimal standard of living.
And I think that this administration has absolutely carved out a vision for what that’s going to look like. And they’re doing everything they can to execute on it. And don’t get me wrong, I think runaway inflation would be terrible. I just don’t — it’s really hard to look at the last 30 years and think, oh, we’re on the cusp of runaway inflation.
There’s a weird inflation blackmail in the conversation, where because it has this, well, maybe it’ll just get out of control and then nobody quite knows what to do, the Fed isn’t that good at getting it under control, or at least we don’t know for sure if they will be. Although my view is they have a lot more tools than they would have had at other points in the past.
You kind of end up in a blackmail in that conversation, where it’s like, well, I guess I can’t tell you it will get out of control, because it hasn’t yet, but nobody quite knows what that dynamic looks like. Not that it wouldn’t be bad if it happened, but it’s used in the conversation as a nonlinear risk. So you have a bit more inflation. We’re very, very, very far from having symmetrically overshot inflation over — let’s call it — the past 20 years. I mean, we’re unbelievably far from that right now.
But there’s this, well, maybe, right? Well, maybe it just goes nuts and then we’re Weimar Germany — is always like the thing in the back of the conversation. And I don’t want to touch that to like a Larry or someone. They’re much more rigorous, much more serious about what they’re saying.
But there is a way in which inflation just particularly frustrates me. There is a set of economic risks that I’m not saying they’re not real, but they collapse into vagueness very fast, and that allows them to be deployed in asymmetrical ways. So poverty doesn’t tend to work like this, unemployment doesn’t tend to work like this, wages don’t tend to work like this. And it’s frustrating, one, because these risks are treated differently in the political debate.
But it’s also frustrating, two, because I suspect that part of what is going on with them is they affect a different set of people. Like it is not the folks at the commanding heights of the economic policy debate who experience stagnating wages and who experience poverty. I think the Democratic economists we’re talking about here do care a lot about those things.
But I think a lot of the people who drive like CNBC chatter, like they’re creditors not debtors. They feel things like inflation. They feel the possibility of future business uncertainty hurting markets. And then all of a sudden those risks then get taken much more seriously. And the fact that they could then explode in some way we can’t describe or understand gets taken much more seriously.
And there’s a big tilt in the conversation over what risks people are willing to bear, and also what level of evidence they need to start getting worried about them. We’re just very sensitive to some of these risks like inflation, and so the level of evidence is pretty low. Whereas some of the others are willing to leave at a crisis level for a long time.
I just did a podcast with Jamila Michener a couple of weeks ago. And one point she was making was, look at unemployment in the Black community. It is at what in the white communities would be thought of as recession or depression levels continuously, but that’s just like a level of economic pain like America just keeps running. Whereas like, oh a month of inflation, and people freak out.
So I want to come back to something that is super important, which is they are creditors not debtors. Because inflation is great for a debtor. It’s terrible for a creditor, right? Because what you owe becomes smaller and smaller as a share of your income the more inflation there is, and what you’re paying back in terms of what it would actually purchase becomes smaller and smaller. And that’s why creditors hate it.
I think what a lot of people don’t realize when we talk about inflation is they think that the prices of everything’s going up but their wages aren’t. But of course, inflation is a generalized rise in prices, and so that means the price of workers is going up as well. And there’s a question as to — if you see inflation at five percent, it doesn’t mean everybody’s wages are going up five percent and every price is going up five percent. So there is also a little bit of reallocation as you see what prices go up the most and people shift away from that.
And I think right now, people are particularly worried about inflation — and I want to put like air quotes around that — because what they’re seeing is the price of low wage labor going up. And they’re like, I don’t want to pay more for workers. I don’t want to pay $10 an hour when I used to only pay $9 an hour. I don’t to pay $11 an hour when I used to only pay $10 an hour.
Well, people don’t want to work for $9 an hour anymore, and they’re looking for higher pay. And the employers who are willing to pay it are going to be able to recruit people more effectively. So that is why they’re complaining. There are winners and losers from inflation, and what you have is potential losers howling about it. And I think it’s really good for us to have that conversation about who those potential winners and losers are. And for the typical American who’s in a lot of debt, they’re not a loser from inflation. They’re often a winner.
What do you think about the argument that we treat — certainly rhetorically — inflation too much as a demand side problem? When actually right now we should think of it much more as a supply side problem with very specific approaches. So people often think, when they think of inflation, about stagflation and Paul Volcker, hiking interest rates, and causing a recession to lock back demand, and that breaks the inflation of that era. But you look right now and there is a big price increase on used cars, and gasoline, and airline tickets, and potentially — although it’s a little bit more anecdotal for complicated reasons — housing.
And my friend, Matt Iglesias, had a good piece in his newsletter arguing look, there’s a lot you can do on the supply side here if you’re worried about this. I mean, there are things we can do. For instance, the federal government can ratchet back its current purchasing of cars to make sure there’s more open supply for consumers. There are things you can do on the licensing side, on the zoning side for homes.
Like if you really are worried about price increases — and the price increases seem right now to be localized to specific industries — you could just approach that as the problem and not this incredibly generalized medicine of taking expanded unemployment insurance away from everybody early simultaneously no matter — they’re probably not the people who are buying a lot of airline tickets.
So how do you think about that, not treating it as something where you need to ratchet back economy wide aggregate demand by hurting workers. But something where you want to say, OK, this is where there’s some inflation. Here’s where we think the supply constraint is. Like let’s try to open that up.
So I think what you’re describing is the difference between ongoing inflation that’s driven by expectations for ongoing inflation, right? That’s sort of that — we had to break the back of that. Because what was happening is everybody expected inflation, so they’re building that into contracts. People are saying, hey, if you’re going to be paying me in a year, you’ve got to be paying me 10 percent more, because I see 10 percent inflation on the horizon.
Workers are demanding that they’re going to get raises that keep them up with inflation, and it just becomes this self-sustaining prophecy. That because people expect it, they build it in, and they make it come to fruition. That’s not where we’re at right now.
Right now we have what you just described, a supply side problem. And what we want to prevent is that becoming baked in through a set of expectations. We don’t want people negotiating forward for expecting higher prices in 2023 than 2022. So yes, we could try to alleviate some of that. We could also just continue to remind people to be somewhat patient. You could encourage sellers to sell with long delivery lags. So yes, you’re going to get your new car but we’ll put you in the queue. It’s going to come in six months.
You gave the example of — if you think back to a year ago, we were stockpiling toilet paper and Lysol wipes and hand sanitizer. All that stuff’s now easy to get again. I think the problems that we’re seeing on the supply side, they’re going to naturally fix themselves.
And the question is simply, will people somehow convince themselves that this is going to last forever? Will people who are paying twice what they would normally pay, or three times what they would normally pay for a hotel room this summer, are they going to be ready to rush ahead and pre-book 2022 at four times what they would have normally paid?
I hope that they’re going to think, no, I don’t need to do that. And as long as people realize that there’s sort of a clog in the system that we’re going to have to work through — if we can do things to alleviate supply problems, that’s fine. But I think that’s where our inflation is coming from right now.
I think that’s a great distinction. And I want to flip this whole conversation 180 before we end. So you talked at the beginning about the ways in which maybe workers’ expectations of what is possible for them are going up. We’ve talked about the dangers of inflationary expectations getting out of control — a lot of the economy’s expectations.
And so we’ve been talking here in this inflation part of the conversation about what if we fight for a full employment economy. And say that instead of getting it, we get the downside of an inflationary economy. But I actually do want to talk about what a full employment economy will look like. What if the vision does work and you do have this change in expectations and change in power between what employers expect to be happening with workers? What workers expect to be happening with employers?
Already we’re seeing in data from job sites and otherwise a real change in what kinds of qualifications are being asked for. Many more places saying no experience necessary. Many more places offering signing bonuses. So let’s say the expectations start moving the other direction, and you actually do begin to have this more worker-centric economy. How does a full employment economy look different than what we have come to know over the past couple of decades?
I think it is an economy that is less driven by the desperation of people at the bottom and more driven by people being able to go to jobs that they feel appreciated in. I think we’ve seen successes in the past. I think we see successes in other countries.
Australia pays restaurant workers something like $25, $30 Australian an hour, which is something like $22, $25 American an hour. And you see a much more professional attitude towards working in restaurants because people feel appreciated and well compensated. And at the end of the day, they’re more productive, and you don’t really see prices being much higher.
If you look at all the research that’s been done on what happens when wages go up, but — you’re starting to hear right now a lot of the threats. Like, OK, the fast food restaurants will all adopt kiosks. They’re going to adopt kiosks whether wages go up or don’t go up, right? And the idea that we need to keep workers so low paid that they can compete with technology, whose prices are declining over time, it’s just unsustainable.
I think what would be great would be to see a full employment economy where we had more wage compression and people were happier in their jobs. And I mean that up and down the income distribution. And that definitely means that we can’t have a bunch of tech billionaires sucking out all the surplus that’s generated by workers, and keeping that money without contributing much to taxes, without contributing much to their workers. So I mean, I think a vision of a true full employment economy has to be one with less inequality than what the United States has right now.
I think it’s a good place to end. So let me ask you always our final question, what are three books you would recommend to the audience?
So the first book is “Klara and the Sun,” which is a fiction book. It’s a sci-fi fiction book. But I think it’s really about what it means to serve and be served, and what it means to be human.
The second book is an older book by Tim Harford called “The Undercover Economist Strikes Back.” And I just recommend that book to everyone because he explains the macro economy in a way that is just a joyous romp through macroeconomics. So if you ever felt like you needed to learn some more macro and wanted to have a blast to doing it, Tim Harford is your guy.
And then the third one is a book by Claudia Goldin called “Career and Family,” which is sort of a dry title. But it’s actually a really amazing book where she essentially points to the problem of what she calls greedy jobs. And greedy jobs are like a demanding toddler that wants your attention exactly when it wants it and doesn’t care what you’re doing.
And then she points out that if you have a toddler, you can’t have a toddler job. You can’t have a greedy job. And that women cannot have equality in the home or in the workplace until we wrestle greedy jobs. And I think it raises some really important questions about what it means to have women as full and equal players in the labor force and in the home.
Betsy Stevenson, your podcast is “Think Like An Economist.” Thank you very much.
It was great talking with you today. [MUSIC PLAYING]
“The Ezra Klein Show” is a production of New York Times Opinion. It’s produced by Jeff Geld, Roge Karma and Annie Galvin. Fact checking by Michelle Harris. Original music by Isaac Jones and mixing by Jeff Geld.